In the area around a local university a number of food vendo

In the area around a local university, a number of food vendors gather each lunchtime to sell food to university students who are tired of dorm food. The university and the town have no license fees that apply to food vendors, preferring to let the market dictate how many and wnich vendors show up. Many different cuisines are represented on the street comer including a cart sponsored by Madame Defarge selling gumbo and jambalaya Madame Defarge sells a plate of either gumbo or jambalaya for $6. The food is made in the morning at her nearby restaurant, when the kitchen is otherwise unoccupied. Her crew of three, each of whom eams $12 per hour, takes 1.5 hours to make the 110 meals required by Madame Defarge. In creating these meals, they use ingredients equal to $110. Madame Defarge hires another worker to load her cart with food and sell it during the lunch hours. That worker costs $11 per hour and typically sells out the entire cart of 110 meals in 2 hours. The cart is rented for $100 per 5-day week. (The carts are not in operation on the weekends, when Madame Defarge is too busy at her restaurant.) What factors make this a monopolistically competitive market? (Mark al that apply.) A Madame Defarge sells out the entire cart in 2 hours B. There are many types of food from which students can choose. C. Madame Defarge is one of many vendors. D. Madame Defarge only operates on specific days. E. There are no licensing fees for food-cart vendors Madame Defarge\'s profit per meal is equal to $. (Enter your response rounded to the nearest penny) What would you expect to see happen in this business? 0 A. Firms would enter this market due to positive economic profit in the short run. O B. Firms would exit this market due to negative economic profit in the short run. O C. Firms would exit this market due to negative economic profit in the short run. O D. Firms would enter this market due to positive economic profit in the long run.

Solution

P

N

VC

Wages

TC

TR

Profit

Plate

6

110

110

76

186

660

474

Profit per day

474

Profit for 5 day

2370

Profit after rent deduction

2270

Profit per plate

20.6

The profit per meal is equal to $20.6= 2270/110

Option B,C,E

Option A. The profit derived attracts many firms to the business in short run which leads to zero long run profits.

	P	N	VC	Wages	TC	TR	Profit
Plate	6	110	110	76	186	660	474